Get Used To Not Getting Much From Bonds – LPL

By Michael Aneiro

In case you weren’t duly discouraged after reading Pimco’s annular secular outlook this morning, LPL Financial offers a similarly sobering assessment of income investment opportunities today. LPL fixed-income strategist Anthony Valeri surveys the bond landscape and sees little in the way of compelling investments or attractive yields out there:

The lack of opportunity in the Treasury market extends to other bond sectors as well. Yield spreads on investment-grade corporate and high-yield bonds are at post-recession lows, while yield spreads on mortgage-backed securities, emerging market debt (EMD), and preferred securities are near some of the lowest levels of the past few years. The same holds true in the municipal bond market, with muni-to-Treasury ratios lower and municipal high-yield spreads also on the narrower side of recent history.

Valeri says bond-market gains so far this year have left yields at depressed levels, so much so that investors might need to rethink the role of bonds in their portfolios:

Intermediate- to long-term Treasury yields increased last week but remain near the lows of the year…. Broad-based bond market strength and a Barclays Aggregate Bond Index that is up nearly 3% year to date through Monday, May 12, imply few opportunities for fixed income investors. Bonds still play a role in investor portfolios, but low yields and tighter yield spreads augur for lower returns going forward.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.